Study sets, textbooks, questions
Upgrade to remove ads
AC302: Advanced Accounting II
Chapter 1 Quiz
Terms in this set (10)
When an investor uses the equity method to account for investments in common stock, the investor's share of cash dividends from the investee should be recorded as
A deduction from the investment account.
The equity method tends to be most appropriate if
An investment enables the investor to influence the operating and financial decisions of the investee.
Hawkins Company has owned 10 percent of Larker, Inc., for the past several years. This ownership did not allow Hawkins to have significant influence over Larker. Recently, Hawkins acquired an additional 30 percent of Larker and now will use the equity method. How will the investor report change?
No change is recorded; the equity method is used from the date of the new acquisition.
Under fair-value accounting for an equity investment, which of the following affects the income the investor recognizes from its ownership of the investee?
Changes in the fair value of the investor's ownership shares of the investee.
When an equity method investment account is reduced to a zero balance
The investment retains a zero balance until subsequent investee profits eliminate all unrecognized losses.
On January 1, Belleville Company paid $2,295,000 to acquire 90,000 shares of O'Fallon's voting common stock, which represents a 30 percent investment. No allocations to goodwill or other specific accounts were made. Significant influence over O'Fallon is achieved by this acquisition, and so Belleville applies the equity method. O'Fallon declared a $1 per share dividend during the year and reported net income of $750,000. What is the balance in the Investment in O'Fallon account found in Belleville's financial records as of December 31?
Franklin purchases 40 percent of Johnson Company on January 1 for $500,000. Although Franklin did not use it, this acquisition gave Franklin the ability to apply significant influence to Johnson's operating and financing policies. Johnson reports assets on that date of $1,400,000 with liabilities of $500,000. One building with a seven-year remaining life is undervalued on Johnson's books by $140,000. Also, Johnson's book value for its trademark (10-year remaining life) is undervalued by $210,000. During the year, Johnson reports net income of $90,000 while declaring dividends of $30,000. What is the Investment in Johnson Company balance (equity method) in Franklin's financial records as of December 31?
Perez, Inc., applies the equity method for its 25 percent investment in Senior, Inc. During 2021, Perez sold goods with a 40 percent gross profit to Senior, which sold all of these goods in 2021. How should Perez report the effect of the intra-entity sale on its 2021 income statement?
No adjustment is necessary.
Jubilee, Inc., owns 35 percent of JPW Company and applies the equity method. During the current year, Jubilee buys inventory costing $60,000 and then sells it to JPW for $75,000. At the end of the year, JPW still holds only $30,000 of merchandise. What amount of gross profit must Jubilee defer in reporting this investment using the equity method?
Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2020, for $530,000. The equity method of accounting is to be used. Steinbart's net assets on that date were $1.2 million. Any excess of cost over book value is attributable to a trade name with a 20-year remaining life. Steinbart immediately begins supplying inventory to Alex as follows:
Year Cost to S Transfer (at transfer price)
2020 $70,000 $100,000 $25,000
2021 96,000 150,000 45,000
Inventory held at the end of one year by Alex is sold at the beginning of the next.
Steinbart reports net income of $80,000 in 2020 and $110,000 in 2021 and declares $30,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2021?
Other sets by this creator
AC471 CH 6
AC461 CH 7, 11, 12
AC211 Chapter 21
AC471 CH 5
Other Quizlet sets
Pharmacology/Venipuncture: Midterm Self-test
Quizz formatif du module 1
Wie gut kennst du Wien?